APPOINTMENT AND QUALIFICATION OF DIRECTORS

Section 149 - COMPANY TO HAVE BOARD OF DIRECTORS

1. NO. OF DIRECTORS :
Every Company should have a Board of Directors consisting of individuals as directors and shall have –
(a) Minimum Directors :

Public Company = 3 Private Company = 2 One Person Company = 1

(b) Maximum of 15 directors:

If a Company wants to appoint more than fifteen directors, it must pass a special resolution.
** This section is Not applicable to: Government companies & section 8 Companies.
(c) Women director: Second Proviso to Section 149(1)
Prescribed class or classes of companies shall have at least one woman director.
Prescribed = Company

Listed Company Unlisted Public Company Private Company

Always Applicable 2 conditions - If any one

Satisfied, atleast 1 WD
must be appointed Not Applicable

1.PUSC >= Rs. 100Cr.

2.T/o >= Rs. 300Cr.

* Any vacancy in office of the women director shall be filled up by board at the earliest but not later than :

Immediate next Board meeting

OR Whichever is later
3 months from date of vacancy

** Second proviso to Sub-section (1) of section 149 shall not apply to Specified IFSC Public Company

2. RESIDENT DIRECTOR :
Every Company shall have at least one resident director i.e who has stayed in India for a total period of not
less than one hundred and eighty-two days in the previous Financial year.
Provided that in case of a newly incorporated company the requirement under this sub-section
shall apply proportionately at the end of the financial year in which it is incorporated.
** This sub-section shall apply to a Specified IFSC public company in respect of financial years other than the
first financial year from the date of its incorporation

3. INDEPENDENT DIRECTOR :
a. Prescribed :
i) Every listed Company shall have at least one-third of the total number of directors as independent
directors.
ii) The CG may prescribe the minimum number of independent directors in case of any class or classes
of public companies.
iii) Any fraction contained in such one-third number shall be rounded off as one.
b. According to Companies (Appointment & Qualification of Director) Rules, 2014 Public company falling
under any of the following criteria’s shall have atleast 2 Directors as Independent Directors.
i) Paid up share capital >= Rs. 10 Crore.
ii) Turnover >= Rs. 100 Crore.
iii) AGGREGATE of o/s loans+ debentures + deposits > Rs. 50 Crore.
However, the following classes of unlisted public companies shall not be required to have any independent director:
(a) A joint venture
(b) A wholly owned subsidiary
(c) A dormant company as defined under section 455 of the Act.

Any vacancy in office of the Independent director shall be filled up by board at the earliest but not later than :
Immediate next Board meeting
OR Whichever is later
3 months from date of vacancy
c. Discontinuation of applicability. :
When a Company does not satisfy any of the 3 conditions for consecutive 3 years, then this section shall cease
to apply.
i.e. should not be satisfying even 1 condition for 3 years.

6. WHO CAN BECOME an INDEPENDENT DIRECTOR :

An independent director in relation to a Company, means a director other than a managing director or a
whole-time director or a nominee director, who fulfills the following criteria
Key : I M RustoM OF VEN.
{* : Or its holding, subsidiary or associate Company.}
Who can become the Independent Director Section 149(6):
In relation to a Company, an independent director means a director other than a
managing director or a whole – time director or a nominee director, and who fulfills
the following criteria:
(1) who, in the opinion of the Board, is a person of Integrity and possesses
relevant expertise and experience;
Amendment - in case of a Government Company, the word "Board' shall
be substituted by the words "Ministry or Department of the CG which is
administratively in charge of the Company, or, as the case may be, the
State Government"
(2) (a) who is or was not a promoter of the Company or its holding, subsidiary or associate Company;
(b) who is not Related to promoters or directors in the Company, its holding, subsidiary or associate
Company;
(3) who has or had no Pecuniary Relationship, other than remuneration as such director or having
transaction not exceeding ten per cent. of his total income or such amount as may be
prescribed with the Company, its holding, subsidiary or associate Company, or their promoters, or
directors, during the two immediately preceding financial years or during the current financial year
Amendment - Point no. (3) section 149(6)(c) shall not apply in case of a Government Company.
(4) none of whose relatives has or had pecuniary/monetary relationship or transaction with the Company, its
holding, subsidiary or associate Company, or their promoters, or directors, amounting to 2% or more of
its gross turnover or total income or 50 lakh Rs. or such higher amount as may be prescribed, whichever is
lower, during the two immediately preceding financial years or during the current financial year;
Exception : Holding by relatives upto following limits is allowed :
Rs. 50 Lakhs or
Upto 2% of PUSC of Company (Co. includes …)
Whichever is less
(ii) is indebted to the company, (Co. includes … or their promoters, or directors) in excess of
such amount as may be prescribed during the two immediately preceding financial years or
during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company (Co. includes … or their promoters or directors of such holding
company) for such amount as may be prescribed during the two immediately preceding financial
years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company (co. includes …)
amounting to 2% or more of its gross turnover or total income singly or in combination with the
transactions referred to in sub-clause (i), (ii) or (iii).

(5) who, himself—

(a) holds or has held the position of a key managerial personnel or is or has been Employee of the Company or
its holding, subsidiary or associate Company in any of the 3 financial years immediately preceding the
financial year in which he is proposed to be appointed; or Relative is an Employee in CY
(b) is or has been an employee or proprietor or a partner, in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed, of—
(i) a Firm of auditors or Company secretaries in practice or cost auditors of the Company or its holding,
subsidiary or associate Company; or
(ii) any legal or a consulting firm that has or had any transaction with the Company, its holding, subsidiary or
associate Company amounting to ten percent. or more of the gross turnover of such firm;
(c) holds together with his relatives 2% or more of the total voting power of the Company; or
(d) is a Chief Executive or director, by whatever name called, of any Non- profit organisation that receives
twenty-five per cent or more of its receipts from the Company, any of its promoters, directors or its holding,
subsidiary or associate Company or that holds 2% or more of the total Voting power of the Company; or
(6) who possesses such Other qualifications as may be prescribed. According to the Companies (Appointment
and Qualification of Directors) Rules, 2014, independent director shall possess appropriate skills, experience and
knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate
governance, technical operations or other disciplines related to the Company‘s business.

Declaration by Independent Director Section 149(7):

Every independent director shall
(1) at the first meeting of the Board in which he participates as a director; and
(2) thereafter at the first meeting of the Board in every financial year; or
(3) whenever there is any change in the circumstances which may affect his status as an independent
director, give a declaration that he meets the criteria of independence as provided in sub-section (6).

Code for independent directors Section 149(8):

The Company and independent directors shall abide by the provisions specified in Schedule IV to the
Companies Act, 2013.
(i) Remuneration of Independent Directors Section 149(9): Notwithstanding anything contained in
any other provision of this Act, but subject to the provisions of sections 197 and 198, an independent
director shall not be entitled to any stock option and may receive remuneration by way of
(1) fee provided under section 197(5),
(2) reimbursement of expenses for participation in the Board and other meetings and
(3) profit related commission as may be approved by the members.

Tenure Section 149(10) & (11):

(i) Subject to the provisions of section 152 (Appointment of directors),
-- Term = Max 5 Consecutive Years (1st term)
Re-appointment = Max 5 Consecutive years (2nd term) and
disclosure of such appointment in the Board's report.
(ii) No independent director shall hold office for more than two consecutive terms.
Cooling Period = 3 years
During the said period of three years, such independent director shall not, be appointed in or be associated with
the Company in any other capacity, either directly or indirectly.

Liability Section 149(12): As per section 149(12) of the Companies Act, 2013,
Notwithstanding anything contained in this Act,—
(i) an independent director;
(ii) a non-executive director not being promoter or key managerial personnel, shall be held liable, only in
respect of such acts of omission or commission by a Company which had occurred with his knowledge,
attributable through Board processes, and with his consent or connivance or where he had not acted
diligently.

Retirement by rotation Section 149(13):

The provisions of retirement of directors by rotation covered under sub-sections (6) and (7) of section 152 shall
not be applicable to appointment of independent director.
(Note: The provisions of retirement of directors by rotation covered under sub-sections (6) and (7) of section
152 will be discussed later on in this chapter)
Here, in section 149 ― “Nominee director” means a director nominated by any financial institution in pursuance of
the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any
other person to represent its interests.

Amendment - The provisions of sub-section (4), (5), (6), (7), (8), (9), (10),(11), clause (i) of sub-
section (12) [related to independent director] and sub- section (13) of section 149 of the
Companies Act, 2013 is Not Applicable to a Section 8 Company
In case of Specified IFSC Public Company - Sub-sections (4) to (11), clause (i) of subsection (12) and subsection
(13) of section 149 shall not apply. - Notification Dated 4th January 2017

Exam Question
As per their AOA, the maximum number of Directors of each of the following companies is 9:
(i) Rockstar Company Limited.
(ii) Rupa Trading Private Limited.
(iii) Hindustan Iron limited (a Government Company under section 2(45) of the Companies Act, 2013).
The Board of Directors of the aforesaid companies proposes to increase the number of Directors to 15. Advise,
whether under the provisions of the Companies Act, 2013, the Board of Directors can do so?
Answer
Under section 149(1) of the Companies Act, 2013, every Company shall have a Board of Directors consisting of
individuals as directors and shall have a minimum number of 3 directors in the case of a public Company, 2 directors
in the case of a private Company, and one director in the case of a One Person Company. The maximum number of
directors shall be 15.
The proviso to section 149(1) states that
a Company may appoint more than 15 directors after passing a special resolution.
From the provisions of section 149 (1) as above, though the minimum number of directors may vary depending on
whether the Company is a public Company, private or a one person Company, the maximum number of directors is
the same for all types at 15 directors.
In the case of the first two companies in the question above, the maximum permissible limit is 15 directors. Hence,
the Board of Directors of these two companies can increase the number by simply appointing the additional 6
directors at the general meetings of the Company after following the prescribed procedure and conditions.
However, if the number of directors was proposed to have been increased beyond 15 directors, such authority
must be obtained from the members through a special resolution and only after that approval, new directors could
be appointed.
Further, the maximum number of directors being increased to 15 will require the AOA to be altered. Hence,
the special resolution of members will be required to alter the AOA under section 14 of the Companies Act,
2013 and comply with other provisions in the said section.
In case of a Government company, the limit of maximum 15 directors and their increase in limit by special
resolution shall not apply. Thus, in case of Hindustan Iron limited, the board of directors can increase the
number of directors.

Exam Question
The AOA of Gujarat Toys Private Limited provide that the maximum number of Directors in the Company shall be
10. Presently, the Company is having 8 directors.
The Board of directors of the said Company desire to increase the number of directors to 16.
Advise whether under the provisions of the Companies Act, 2013 the Board of Directors can do so.
Answer
Under section 149(1) of the Companies Act, 2013 every Company shall have a Board of Directors consisting of
individuals as directors and shall have a minimum number of 3 directors in the case of a public Company, 2 directors
in the case of a private Company, and one director in the case of a One Person Company. The maximum number of
directors shall be 15.
The proviso to section 149(1) states that a Company may appoint more than 15 directors after passing a special
resolution
From the provisions of section 149 (1) as above, though the minimum number of directors may vary depending on
whether the Company is a public Company, private or a one person Company, the maximum number of directors is
the same for all types at 15 directors.
In the given case since the number of directors is proposed to be increased to 16, the Company will be required
to comply with the following provisions:
(i) Alter its AOA under section 14 of the Act, so as to increase the number of directors in the Articles
from 10 to 16;
(ii) Approval shall also be taken to be authorised to increase the maximum number of directors to 16 by
means of a special resolution of members passed at a duly convened general meeting of the Company.

Exam Question
XYZ Limited is an unlisted public company having a paid-up capital of twenty crore Rs. as on 31st March, 2015 and
a turnover of one hundred fifty crore Rs. during the year ended 31st March, 2015. The total number of directors
is thirteen.
Referring to the provisions of the Companies Act, 2013 answer the following:
(i) State the minimum number of independent directors that the company should appoint.
(ii) How many independent directors are to be appointed in case XYZ Limited is a listed company?
Answer
(i) According to Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the
following class or classes of companies shall have at least 2 directors as independent directors:
(1) the Public Companies having paid up share capital of 10 crore Rs. or more; or
(2) the Public Companies having turnover of 100 crore Rs. or more; or
(3) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50
crore Rs..
However, the following classes of unlisted public companies shall not be required to have any independent director:
(a) A joint venture
(b) A wholly owned subsidiary
(c) A dormant company as defined under section 455 of the Act.
In the present case, XYZ Limited is an unlisted public company having a paid-up capital of Rs. 20 crores as on 31st
March, 2015 and a turnover of Rs. 150 crores during the year ended 31st March, 2015. Thus, as per the Companies
(Appointment and Qualification of Directors) Rules, 2014, XYZ Limited shall have at least 2 directors as
independent directors.
(ii) According to section 149(4) of the Companies Act, 2013, every listed public company shall have at least
one-third of the total number of directors as independent directors.
In the present case, XYZ Limited is a listed company and the total number of directors is 13. Hence, in this case,
XYZ Limited shall have atleast 5 directors (1/3 of 13 is 4.33 rounded as 5) as independent directors.
The explanation to section 149(4) specifies that any fraction contained in such one-third numbers shall be rounded
off as one.
As the explanation to rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 specifies
that for the purpose of the assessment of the paid up share capital or turnover or outstanding loans, debentures
and deposits, as the case may be, their existence on the last date of latest audited financial statements shall be
taken into account.
In the present case, it is mentioned that paid up capital of XYZ Limited is Rs. 20 crore on 31st March, 2015 and
turnover is Rs. 150 crore during the year ended 31st March, 2015. So, it is assumed that 31st March, 2015 is the
last date of latest audited financial statements.

Exam Question
Royal Limited is a company listed at Madras Stock Exchange, incorporated on 1st January, 2015. The Board of
Directors of the company decides to appoint in its Board ‘Women Director’ and the ‘Resident Director’.
(i) Explaining the provisions of the Companies Act, 2013, state whether it is mandatory for the company to
appoint such directors in its Board.
(ii) What would be your answer in case the company is a non-listed company and the Board of Directors
decided not to have the Women Director in the company’s Board ?
(iii) What shall be your answer in case the company in question is not listed at any of the Exchanges. The
paid-up share capital of the company is Rs. 50 crore and the turnover of the company is Rs. 200 crore.
Decide whether the company is mandatorily required to appoint the woman director.

Answer
In accordance with the provisions of the Companies Act, 2013 as contained under section 149, appointment of
Women director and Resident Director is regulated by the said provisions. Accordingly, at least one woman
director shall be on the Board of such class or classes or companies as may be prescribed. [second proviso to
section 149(1)]. The Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the
following classes of companies shall appoint at least one woman director:
(i) Every listed company
(ii) Every other public company having:
(a) Paid up share capital of Rs. 100 crore or more; or
(b) turnover of Rs. 300 crore or more.
Further, any intermittent vacancy of a woman director shall be filled up by the Board at the earliest but not later
than immediate next Board meeting or three months from the date of such vacancy whichever is later. Resident
Director:
Every company shall have at least one director who has stayed in India for a total period of not less than 182
days in the previous calendar year. [Section 149(3)]
Thus, according to the above provisions:
(i) In the first case, since the Royal Limited company is a listed company, it is required to comply with the
above provisions and should appoint the women director and the Resident Director accordingly.
(ii) In the second case, since, the Royal Limited Company is a non listed company, it is not mandatory to have
a woman director on the Board.
(iii) In the third case, since, the paid-up share capital of the company is Rs. 50 crore and the turnover of the
company is Rs. 200 crore and the company is non listed company, it is not mandatory to have a woman
director on the Board.

Exam Question
M Ltd. is an unlisted company engaged in FMCG sector having 11 directors on its Board. The company has paid-up
share capital of Rs. 300 crore and a turnover of Rs. 500 crore. The provisions contained in the Companies Act,
2013 require the companies to have the following categories of directors on their Board
(a) Woman director
(b) Independent director
Keeping in view of the provisions of the Companies Act, 2013, M Ltd appointed the directors as required by the
Act. State the relevant provisions.
Answer
(a) Woman Director Second Proviso to Section 149(1) read with Rule 3 of the Companies (Appointment and
Qualification of Directors) Rules, 2014 provides that the following class of companies shall appoint at least
one woman director. These companies under the provisions are:
(1) Every listed company; and
(2) Every other public company having –
(a) paid-up share capital of Rs. 100 crore or more; or
(b) a turnover of Rs. 300 crore or more.
Accordingly, since M Limited is a public company and the paid up capital of company is Rs. 300 crores, and turn
over is Rs. 500 crores the company shall appoint at least one woman director.

(b) Independent Director As per Section 149(4), every listed public company shall have at least 1/3rd of the
total number of directors as independent directors. The CG, may however, prescribe the minimum number
of Independent Directors in case of any class or classes of public companies. According to Rule 4 of the
Companies (Appointment and qualification of Directors) Rules, 2014 provides that the following companies
are required to have at least 2 directors as independent directors:
(i) The public companies having paid up share capital of Rs. 10 crore or more; or
(ii) Public companies having turnover of Rs. 100 crore or more; or
(iii) Public companies which have, in aggregate, outstanding loans, debentures, and deposits exceeding Rs. 50
crore.
In the given case, since company fulfills the conditions as required in respect of paid-up capital and
turnover, the company must appoint at least 2 independent directors.

Section 150 - Manner of selection of independent directors and maintenance of data

bank of Independent Directors

1. 150(1): An independent director may be selected from a data bank containing names, addresses and
qualifications of persons who are eligible and willing to act as independent directors subject to the provisions
contained in section 149(5).
Databank shall be maintained by any body, institute or association, as may be notified by the CG, having
expertise in creation and maintenance of such data bank and put on their website for the use by the Company
making the appointment of such directors.
The responsibility of exercising due diligence shall lie with the Company making such appointment, before
selecting a person from the data bank as an independent director.
2. 150(2): The appointment of independent director shall be approved by the Company in general meeting and
the explanatory statement annexed to the notice of the general meeting called to consider the said
appointment, shall indicate the justification for choosing the appointee for appointment as independent
director.
3. 150(3): The data bank shall create and maintain data of persons willing to act as independent director in
accordance with such rules as may be prescribed.
4. 150(4): The CG may prescribe the manner and procedure of selection of independent directors who fulfil
the qualifications and requirements specified under section 149.
Amendment – This Section is Not applicable to Section 8 Companies.

Section 151 - APPOINTMENT OF DIRECTOR ELECTED BY SMALL SHAREHOLDERS

Applicability : A listed Company may have one Small shareholder director.

Small shareholders means a shareholder holding shares of nominal value of not more than twenty thousand
Rs. or such other sum as may be prescribed.
Companies (Appointment & Qualification of directors) provides for procedure of appointment of small
shareholder director as follows:

1) MANNER OF APPOINTMENT :
A listed Company may appoint small shareholder director,
a) Either SUO MOTO; or
b) On application made by requisite no. of small shareholders.

2) MINIMUM REQUISITION :
Notice must be made by :
a) 1000 small shareholders; or
b) 1/10th of the total small shareholders WHICHEVER IS LESS.
3) NOTICE TO COMPANY :
Small shareholders intending to propose a person as small shareholder director shall give a notice to Company
atleast 14 days before the meeting in writing.

4) CONTENTS OF NOTICE :
The notice shall specify the name, address, shares held & folio number (if any)
of The person proposed to be appointed; and
The small shareholders proposing the appointment.
**If the person to be appointed doesn’t hold any shares then details as to shares held & folio no. need not be
given.

5) DECLARATION BY SSD:
Notice shall be accompanied with a declaration by proposed small shareholder director stating :
-His DIN
-That he is not disqualified to act as director; and
-His consent to act as director of the Company.

6) SSD TO BE CONSIDERED INDEPENDENT DIRECTOR:

SSD shall be considered as INDEPENDENT director subject to compliance with section 149(6) & 149(7).
{Eligibility & Declaration}.

7) TERM / TENURE :
Term shall not exceed a period of 3 consecutive years.
On the expiry of tenure, he shall not be eligible for reappointment.
Cooling period shall be 3 years.
During the cooling period (3 yrs from the date when he ceases to hold office) the SSD shall not be appointed
or be associated with the Company in any other capacity directly or indirectly.

8) DISQUALIFICATION U/S 164 :

A person cannot be appointed at SSD if he is disqualified u/s 164.

9) VACATION OF OFFICE :
SSD shall vacate his office if :
-Attracts disqualification u/s
164 -Section 167
-Ceases to be independent u/s 149
10) MAXIMUM COMPANIES :
-A person cannot hold the position of small shareholder in more than 2 Companies.
-However, second Company should not be into competing business or in conflicting business with the
first Company.

Exam Question
Sun Moon Pharma Limited is a Company listed with Malhargarh Stock Exchange. Some small shareholders of the
said Company want to appoint Mr. Rajesh as a Director as their representative on the Board of Directors of the
said Company. Mr. Rajesh is holding 1000 equity shares of 10 each in the said Company. State the provisions of
the Companies Act, 2013 in relation to the proposal to appoint Mr. Rajesh as a Small Shareholders' Director.

Answer
Section 151 of the Companies Act, 2013 provides that a listed Company may have one director elected by such
small shareholders in such manner and with such terms and conditions as may be prescribed. Further, the
explanation to section 151 clarifies that for the purposes of section 151 “small shareholders” means a
shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.
In the given case, the Company is a listed one; hence the provisions of section 151 will apply.
The Companies (Appointment & Qualifications of Directors) Rules, 2014 clearly provides that a listed Company,
may upon notice of not less than 1,000 small shareholders or one- tenth of the total number of such shareholders,
whichever is lower, have a small shareholders’ director elected by the small shareholders.
Therefore, the number of small shareholders who can send the notice for the appointment of a small shareholders
director must not be less than 1,000 or one tenth of the total number of small shareholders. This is not clarified
in the question. Presuming that the small shareholders meet the criteria, they must give 14 days’ notice to the
Company under their signatures specifying the name, address, shares held and folio number of the person whose
name is being proposed for the post of director and of the small shareholders who are proposing such person for
the office of director.
From the above, it is clear that Mr. Rajesh who holds 1,000 shares in the Company is not debarred from being
appointed the small shareholders’ director in the Company.

Exam Question
DD Ltd. is a listed company and it has been served with notice for appointment of small shareholders' director.
Referring to the provisions of the Companies Act, 2013, advise on the following:
(i) Define the expression 'small shareholder' and specify the number of small shareholders who may serve
notice on the company for a director representing them.
(ii) Is it possible to appoint a person who does not hold any share in the company, as small shareholders'
director ?
(iii) What is the tenure of small shareholders' director and whether he can be re- appointed as such, after
expiry of his tenure? Also state whether he can be appointed as an officer of the company on expiry of
his tenure as small shareholders' director.
Answer
(i) According to section 151 of the Companies Act, 2013, a listed company may have one director elected by
small shareholders in such manner and on such terms and conditions as may be prescribed.
Here, “Small Shareholders” means a shareholder holding shares of nominal value of not more than Rs. 20,000 or
such other sum as may be prescribed.
A listed company may upon notice of not less than
(a) one thousand small shareholders; or
(b) one- tenth of the total number of such shareholders,
whichever is lower, have a small shareholders’ director elected by the small shareholders.
(i) The small shareholders intending to propose a person as a candidate for the post of small shareholders’
director shall leave a notice of their intention with the company at least fourteen days before the meeting under
their signature specifying the name, address, shares held and folio number of the person whose name is being
proposed for the post of director and of the small shareholders who are proposing such person for the office of
director.
However, if the person being proposed does not hold any shares in the company, the details of shares held and
folio number need not be specified in the notice.
Further, the notice shall be accompanied by a statement signed by the person whose name is being proposed
for the post of small shareholders’ director stating-
(a) his Director Identification Number;
(b) that he is not disqualified to become a director under the Act; and
(c) his consent to act as a director of the company

(ii) The tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and on the
expiry of the tenure, such director shall not be eligible for re-appointment.
A small shareholders’ director shall not, for a period of 3 years from the date on which he ceases to hold office
as a small shareholders’ director in a company, be appointed in or be associated with such company in any other
capacity, either directly or indirectly.
Section 152 - APPOINTMENT OF DIRECTORS

152(1):
i) First Director : AOA

Specifies name of 1st Dir. Does not specify name

Person whose name is so Specifies manner Does not specifies manner

specified will be 1st Director

Person appointed by that All subscribers to MOA

st will be the directors of the
manner will be 1 Director
Company
**In case of a One Person Company, an individual being member shall be deemed to be its first director until the
director or directors are duly appointed by the member.

152(2) : Normally every director shall be appointed by the Company in general meeting.
152(3) : A person shall not be appointed as a director of a Company unless he has been allotted the Director Identification
Number or any other number as may be prescribed under section 153 under section 154.
152(4) : Every person proposed to be appointed as a director, shall furnish his Director Identification Number or any
other number as may be prescribed under section 153 and a declaration that he is not disqualified.
152(5) : A person appointed as a director shall not act as a director unless he gives his consent to hold the office as
director to Company and such consent has also been filed with the Registrar within 30 days of his appointment in
such manner as may be prescribed.
In case of Specified IFSC Public Company- In section 152(5) , For the words “thirty days” read as “sixty
days”.- Notification Dated 4th January 2017.
**Not applicable to : a) director appointed by CG &
b) Section 8 Companies.

152(6) : Retirement & Rotation:

(a) Not less than two-thirds of the total number of directors of a public Company shall be persons whose period
of office is liable to determination by retirement of directors by rotation;
(b) At every AGM, one-third of such of the directors for the time being as are liable to retire by rotation, or if
their number is neither three nor a multiple of three, then, the number nearest to one-third, shall
retire from office.
The directors to retire by rotation at every AGM shall be those who have been longest in office since their last
appointment, but if two persons were appointed as directors on the same day, retirement shall be
* By mutual agreement between them; or
* By lots.
(c) Where a director retires as aforesaid, the Company may fill up the vacancy by appointing the retiring
director or some other person.
―Total number of directors shall not include independent directors, whether appointed under this Act or any other
law for the time being in force, on the Board of a Company.

Amendment -
*Not applicable to :
a) Government companies
b) Subsidiary of (a)
c) Specified IFSC Public Company

152(7) : Reappointment:
a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved not to
fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and
place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time
and place.
b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting also
has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have
been re-appointed at the adjourned meeting, unless—
i. at that meeting or at the previous meeting a resolution for the reappointment of such director has been put
to the meeting and lost
ii. the retiring director has, by a notice in writing addressed to the Company or its Board of directors,
expressed his unwillingness to be so re-appointed;
iii. he is not qualified or is disqualified for appointment;
iv. a resolution, whether special or ordinary, is required for his appointment or re- appointment by virtue of any
provisions of this Act; or
v. section 162 is applicable to the case.
― retiring director‖ means a director retiring by rotation.
*Not applicable to :
a) Government companies
b) Subsidiary of (a)
c) Specified IFSC Public Company

Exemptions:
Non applicability of section 152(6) and 152(7): The Ministry of Corporate Affairs has clarified via
Notification 13th June, 2017, that section 152(6) and (7) of the Companies Act, 2013, shall not apply to:
(a) Government company, which is not a listed company, in which not less than 51%. of paid up share capital
is held by the CG, or by any State Government
or Governments or by the CG and one or more State Governments;
(b) a subsidiary of a Government company, referred to in (a) above

Exam Question
AGM of Anu Ltd. has been scheduled in compliance with the requirements of the Companies Act, 2013. In this
connection, it has some directors who are rotational and out of which some have been appointed long back, some
have been appointed on the same day.
Decide in this connection:
(i) Which of the directors shall be retiring by rotation?
(ii) In case two directors were appointed on the same day, how would you decide their retirement by rotation?
(iii) In case the meeting could not decide how the vacancies caused by retirement to be dealt with, what shall be
consequences?

Answer
Rotational Directors and Retirement:
(i) According to section 152(6)(a)(i) of the Companies Act, 2013, unless the articles provide for the retirement
of all directors at every AGM, not less than two-thirds of the total number of directors of a public Company shall be
persons whose period of office is liable to determination by retirement of directors by rotation.
Further, section 152(6)(c) of the Act states that one-third of such of the directors for the time being as are liable
to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-
third, shall retire from office.
From the above provisions, it is clear that the directors who are liable for rotation at every AGM shall be one third
of those directors who constitute the two thirds of the total number of directors and who are liable for rotation at
every AGM.
(ii) Under section 152(6)(d) the directors to retire by rotation at every AGM shall be those who have been longest
in office since their last appointment, but as between persons who became directors on the same day, those who are
to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
Therefore, the directors who will retire by rotation shall be those who have been in office for the longest term since
their appointment. In case of two or more directors who were appointed on the same date at the same AGM, the
retiring directors will be mutually agreed by them or in the absence of such agreement, will be determined by lots.
(iii) Under section 152(6)(e) of the Companies Act, 2013 the Vacancy caused by the retirement of directors at
the AGM may be filled in the same AGM by appointing either the retiring directors or some other person. The AGM
may also decide not to fill the vacancy arising from the retirement of one or more directors.
Section 152(7) (a) provides that if the vacancy of the director retiring by rotation, is not so filled-up and the meeting
has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next
week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday,
at the same time and place.
Section 152 (7)(b) further provides that if at the adjourned meeting also, the vacancy of the retiring director is not
filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall
be deemed to have been re-appointed at the adjourned meeting, unless:
(a) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put
to the meeting and lost;
(b) the retiring director has, by a notice in writing addressed to the Company or its Board of directors,
expressed his unwillingness to be so re-appointed;
(c) he is not qualified or is disqualified for appointment;
(d) a resolution, whether special or ordinary, is required for his appointment or reappointment by virtue of any
provisions of this Act; or
(e) section 162 (appointment of directors to be voted individually) is applicable to the case.

Exam Question
ABC Ltd. in its First General Meeting appointed six Directors whose period of office is liable to be determined by
rotation. Briefly explain the procedure and rules regarding retirement of these directors. Will it make any difference,
if ABC Company Ltd. does not carry on business for Profit?
Answer
Under section 152(6) (a) unless the articles provide for the retirement of all directors at every AGM, not less than
two-thirds of the total number of directors of a public Company shall be persons whose period of office is liable to
determination by retirement of directors by rotation.
In the given case, it is assumed that the 6 directors appointed at the first general meeting of the Company constitute
at least two thirds of the total number of directors.
Section 152(6)(c) further states that at every AGM, one-third of such of the directors for the time being as are
liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to
one-third, shall retire from office.
Therefore, in the given case 2 directors will be liable to retire by rotation at the next AGM of the Company.
Section 152(6)(d) further states that the directors to retire by rotation at every AGM shall be those who have
been longest in office since their last appointment, but as between persons who became directors on the same day,
those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
In the given case, all the 6 directors were appointed on the same date.
Hence, the choice of the 2 directors who would retire at the next AGM of the Company will be made either mutually
by these 6 directors failing which; it will be decided by lots.
It will not make any difference under the Companies Act, 2013 if the Company is a non profit organization.
Exam Question
ADJ Limited has 10 directors on its board. Two of the directors have retired by rotation at an AGM. The place of
retiring directors is not so filled up and the meeting has also not expressly resolved 'not to fill the vacancy'. Since
the AGM could not complete its business, it is adjourned to a later date. At this adjourned meeting also the place of
retiring directors could not be filled up, and the meeting has also not expressly resolved 'not to fill the vacancy'.
Referring to the provisions of the Companies Act, 2013, decide:
(i) Whether in such a situation the retiring directors shall be deemed to have been reappointed at the
adjourned meeting?
(ii) What will be your answer in case at the adjourned meeting, the resolutions for reappointment of these
directors were lost?
(iii) Whether such directors can continue in case the directors do not call the AGM?
Answer
In accordance with the provision of the Companies Act, 2013, which provides that if at the AGM at which a director
retires and the vacancy is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the
meeting shall stand adjourned to same day in the next week, at the same time
and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and
place.
Section 152(7)(b) further provides that if at the adjourned meeting also, the place of the retiring is not filled up and
that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have
been re-appointed at the adjourned meeting, unless at the adjourned meeting or at the previous meeting a resolution
for the re-appointment of such directors was put and lost or he has given a notice in writing addressed to the Company
and the Board of Directors expressing his desire not to be re-elected or he is disqualified.
Therefore, in the given circumstances answer to the questions as asked shall be:
(i) In the first case, applying the above provisions, the retiring directors shall be deemed to have been re-
appointed.
(ii) In the second case, where the resolutions for the reappointment of the retiring directors were lost, the
retiring directors shall not be deemed to have been re-appointed.
* Section 152(6)(c) states that 1/3rd of the rotational directors shall retire at every AGM.
They retire at the AGM and at its conclusion. Hence, they will retire as soon as the AGM is held.
Further, as per Companies Act, 2013, every Company other than a One Person Company shall in each year hold an
AGM. Hence, it is necessary for the Company to hold the AGM, whereby these directors will be liable to retire by
rotation.

Exam Question
A and B were appointed as first directors on 4th April, 2014 in Moon Glass Ltd. Thereafter, C, D and E were appointed
as directors on 6th July 2014 and F, G and H were also appointed as directors on 7th August 2014 in the company. In
the Annual General meeting (AGM) of the company held after the above appointments, A and B were proposed to be
retired by rotation and re-appointed as directors.
At the AGM, resolution for A’s retirement and re-appointment was passed. However, before the resolution for ‘B’
could be taken up for consideration, the meeting was adjourned. In the adjourned meeting also, the said resolution
could not be taken up and the meeting was ended without passing the resolution for B’s retirement and re- appointment.
In the light of above and with reference to relevant provision of the Companies Act, 2013, answer the following:
(i) Whether proposals for retirement by rotation and re-appointment of A and B only were sufficient?
(ii) What will be the status of B as a director in the company?
Answer
According to section 152(6)(a)(i) of the Companies Act, 2013, unless the articles provide for the retirement of all
directors at every annual general meeting, not less than two- thirds of the total number of directors of a public
company shall be persons whose period of office is liable to determination by retirement of directors by rotation.
Further, section 152(6)(c) of the Act states that at the first annual general meeting of a public company held next
after the date of the general meeting at which the first directors are appointed and at every subsequent annual
general meeting, one-third of such of the directors for the time being as are liable to retire by rotation, or if their
number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
Section 152(6)(d) further states that the directors to retire by rotation at every annual general meeting shall be
those who have been longest in office since their last appointment, but as between persons who became directors on
the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be
determined by lot.
Section 152(7) (a) provides that if the vacancy of the director retiring by rotation, is not so filled-up and the meeting
has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next
week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday,
at the same time and place.
Section 152 (7)(b) further provides that if at the adjourned meeting also, the vacancy of the retiring director is not
filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed
to have been re-appointed at the adjourned meeting, unless:
(a) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put
to the meeting and lost;
(b) the retiring director has, by a notice in writing addressed to the company or its Board of directors,
expressed his unwillingness to be so re-appointed;
(c) he is not qualified or is disqualified for appointment;
(d) a resolution, whether special or ordinary, is required for his appointment or re- appointment by virtue of any
provisions of this Act; or
(e) section 162 is applicable to the case.
(i) In the given case there are total 8 directors, out of which A and B were appointed as first directors of
Moon Glass Ltd.
As per the provisions of section 152 of the Companies Act, 2013, the number of directors liable to retire by rotation
at the next Annual General Meeting are 2 [1/3 of (2/3 of 8)].
Therefore, in the given case, 2 directors will be liable to retire by rotation at the next AGM of the Company, which
in this case will be A and B as they are who have been longest in office since their last appointment. Thus, the proposals
for retirement by rotation and re-appointment of A and B only were sufficient.
According to section 152(6)(c), at the annual general meeting, one-third of rotational directors shall retire from
office. Thus, B shall retire at the Annual General Meeting in which he was due to retire even though it was adjourned
without the resolution for B’s retirement could have been taken up. Further, at the adjourned meeting also, the
vacancy of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy,
the retiring director shall be deemed to have been re-appointed at the adjourned meeting as he does not fall in the
category of any of the exceptions mentioned in section 152(7)(b). Hence, B will be deemed to be re- appointed as a
director in the company.

Section 153 - APPLICATION FOR ALLOTMENT OF DIRECTOR IDENTIFICATION NUMBER

Every individual intending to be appointed as director of a Company shall make an application for allotment of Director
Identification Number to the CG in such form and manner and along with such fees as may be prescribed.
Provided that the CG may prescribe any identification number which shall be treated as DIN for the
purposes of this Act

Section 154 - ALLOTMENT OF DIRECTOR IDENTIFICATION NUMBER

The CG shall, within one month from the receipt of the application under section 153, allot a Director Identification
Number to an applicant in such manner as may be prescribed.
* CG has wide Notification delegated powers u/s 153 & Sec 154 to Regional Director, Joint Director,
Deputy Director, Assistant Director posted in office of Regional Director at Noida.

Section 155 - Prohibition to obtain more than one DIN

According to this section, no individual, who has already been allotted a DIN under section 154, shall apply for, obtain
or possess another DIN.

Section 156 - Director to intimate DIN

Section 156 of the Companies Act, 2013, provides for a Director to intimate the DIN allotted to him. According to
this section, every existing director shall, within one month of the receipt of DIN from the CG, intimate his DIN to
the Company or all companies wherein he is a director.

Section 157 - Company to inform DIN to Registrar

According to section 157 of the Companies Act, 2013:
(i) Every Company shall, within 15 days of the receipt of intimation under section 156, furnish the DIN of all its
directors to the Registrar or any other officer or authority as may be specified by the CG with such fees as may be
prescribed or with such additional fees as may be prescribed within the time specified under section 403.
Every such intimation shall be furnished in such form and manner as may be prescribed.
(ii) If a Company fails to furnish the DIN under sub-section (1) above, before the expiry of the period specified under
section 403 with additional fee, the Company shall be punishable with fine which shall not be less than Rs. 25,000 but
which may extend to Rs. 1,00,000 and every officer of the Company who is in default shall be punishable with fine
which shall not be less than Rs. 25,000 but which may extend to Rs. 1,00,000.
Section 158 - Obligation to indicate DIN
According to section 158 of the Companies Act, 2013,every person or Company, while furnishing any return,
information or particulars as are required to be furnished under this Act, shall mention the Director Identification
Number in such return, information or particulars in case such return, information or particulars relate to the director
or contain any reference of any director.

Section 159 - Punishment for contravention

Section 159 of the Companies Act, 2013 provides for Punishment for contravention of any of the provisions of section
152, 155 and 156 of the Act .
According to the section, if any individual or director of a Company, contravenes any of the provisions of section 152,
155 and 156, such individual or director of the Company shall be punishable with imprisonment for a term
which may extend to 6 months or with fine which may extend to Rs. 50,000 and where the contravention is a

continuing one, with a further fine which may extend to Rs. 500 for every day after the first during which the
contravention continues.
Exam Question
What do you understand by the term “Director Identification Number” (DIN)? Describe the procedure to obtain the
same as enumerated under the Companies Act, 2013 read with the relevant Rules.
Answer
Director Identification Number (DIN) is a Unique Identification Number issued by the Ministry of Corporate Affairs.
It is required to be obtained by every person who is intending to become a director of any Company. DIN is a pre-
requisite for filing various forms with the Registrar of Companies.
The electronic system of the Ministry of Corporate Affairs will not allow filing / submitting of forms if DIN of the
signatory director is not mentioned in the form being filed /submitted.
Under section 153 of the Companies Act, 2013 every individual intending to be appointed as director of a Company
shall make an application for allotment of Director Identification Number to the CG in such form and manner and
along with such fees as may be prescribed.
1. Under rule 9 sub rule 1 of the Companies (Appointment & Qualification of Directors) Rules, 2014 every
individual, who is to be appointed as director of a Company shall make an application electronically in Form DIR-
3, to the CG for the allotment of a Director Identification Number (DIN) along with such fees as provided in
the Companies (Registration Offices and Fees) Rules, 2014.
2. Under rule 9 (2) of the said rules The CG shall provide an electronic system to facilitate submission of
application for the allotment of DIN through the portal on the website of the Ministry of Corporate Affairs.
3. The applicant shall download Form DIR-3 from the portal, fill in the required particulars sought therein,
verify and sign the form and after attaching copies of the following documents, scan and file the entire
set of documents electronically-
(i) photograph;
(ii) proof of identity;
(iii) proof of residence; and
(iv) specimen signature duly verified.
4. Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital
Signature Certificate and shall be verified digitally by -
(i) a chartered accountant in practice or a Company secretary in practice or a cost accountant in practice;
or
(ii) a Company secretary in full time employment of the Company or by the managing director or director of the
Company in which the applicant is to be appointed as director
Section 154 of the Companies Act, 2013 states that the CG shall, within one month from the receipt of the application
under section 153, allot a Director Identification Number to an applicant in such manner as may be prescribed.
Rule 10 (1) of the Companies (Appointment & Qualifications of Directors) Rules, 2014 states that on the submission
of the Form DIR-3 on the portal and payment of the requisite amount of fees through online mode, an application
number shall be generated by the system automatically.
Rule 10 (2) further provides that after generation of application number , the CG shall process the applications
received for allotment of DIN and decide on the approval or rejection thereof and communicate the same to the
applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other
mode, within a period of one month from the receipt of such application.

Section 160 - Right of persons other than retiring directors to stand for directorship
1. Eligibility : A person who is not a retiring director shall, be eligible for appointment to the office of a director
at any general meeting.
2. Conditions for appointment : if he himself or some member intending to propose him as a director has given at
the registered office of the Company, a notice in writing nominating his candidature as a director along with the
deposit of one lakh Rs.. (Amendment-in case of nidhi companies, deposit shall be 10,000/-)
3. Time limit for filing nomination : Atleast fourteen days before the meeting.
4. Refund of Deposit : Deposit shall be refunded if the person proposed gets elected as a director or gets more
than 25% of total valid votes.
Note - Sec 8 companies i.e. NPO may refund even if votes received are less than or equal to 25%.
The Company shall inform its members of the candidature of the nominated person for the office of director.
Amendment:
a) Government companies in which 100% of PUSC is held by CG/SG/both.
b) Subsidiary of (a)
c) Private Company.
d) Company in which AOA requires appointment of directors by postal ballot.

In case of Specified IFSC Public Company - Section 160 shall apply as per the articles framed by the
company. - Notification Dated 4th January 2017.

Amendment :The requirements of deposit of amount shall not apply in case of appointment of an ID
or a director recommended by the Nomination and Remuneration Committee or a director
recommended by the Board of Directors of the Company, in the case of a company not required to
constitute Nomination and Remuneration Committee.

Section 161 - Appointment of additional director, alternate director and nominee director
1. Additional director :
The articles of a Company may confer on its Board of Directors the power to appoint any person, other than a person
who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold
office up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.
2. Alternate director :
The Board of Directors of a Company may appoint a person to act as an alternate director for any director (original)
during his absence for a period of not less than three months from India. Board must be authorised by its articles
or by a resolution passed in general meeting.
The alternate director appointed must not be holding any alternate directorship for any other director in the Company
at the time of appointment.
Alternate director for an independent director must be a person qualified to be appointed as an independent director
under the provisions of this Act.
Term : Alternate director shall not hold office for a period longer than that permissible to the original director in
whose place he has been appointed and shall vacate the office when the director in whose place he has been appointed
returns to India.
Reappointment of original director : If the term of office of the original director ends before he returns to India,
any automatic re-appointment of retiring directors shall apply to the original, and not to the alternate director.
An existing Director of a company cannot be appointed as an Alternate for any other director of the
same Company.
3. Nominee by third party:The Board may appoint any person as a director, nominated by any institution in
pursuance of any agreement only if the articles of the Company allow such appointment.
4. Casual Vacancy:
If the office of any director appointed by the Company in general meeting is vacated before his term of office expires
in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of
the Company, be filled by the Board of Directors at a meeting of the Board which shall be subsequently approved
by the shareholders in the immediately next GM.
Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed
would have held office if it had not been vacated.
Exam Question
Referring to the provisions of the Companies Act, 2013, examine the validity of the following:
(i) The Board of Directors of AJD Limited appointed Mr. N as an alternate director for a period of two months
against a director who has proceeded abroad on leave for a period of six months. AOA of the Company are
silent.
(ii) Mr. P who is not qualified to be appointed as an independent director is appointed by the Board of Directors
of XYZ Company Limited, for an independent director, as an alternate director.
(iii) On the request of bank providing financial assistance the Board of Directors of PQR Limited decides to
appoint on its Board Mr. Peter, as nominee director.
AOA of the Company do not confer upon the Board of Director any such power. Further, there is no agreement
between the Company and the bank for any such nomination.

Answer:
(i) According to section 161(2) of the Companies Act, 2013, the Board of Directors of a Company may, if so
authorised by its articles or by a resolution passed by the Company in general meeting, appoint a person to act
as an alternate director for a director (original director) during his absence for a period of not less than three
months from India.
In the present case, the Board of Directors of AJD Limited appointed Mr. N as an alternate director for a
period of two months against a director who has proceeded abroad on leave for a period of six months and
AOA of the Company are silent. The said appointment is not valid because the power to appoint alternate
director is not authorised by its articles or by a resolution passed by the Company in GM.

(ii) According to first proviso to section 161(2) of the Companies Act, 2013, no person shall be appointed as an
alternate director for an independent director unless he is qualified to be appointed as an independent director
under the provisions of this Act.
In the present case, Mr. P who is not qualified to be appointed as an independent director is appointed by the
Board of Directors of XYZ Company Limited; for an independent director, as an alternate director. Thus, the
said appointment is not valid.
(iii) According to section 161(3) of the Companies Act, 2013, the Board may appoint any person as a director
nominated by any institution in pursuance of the provisions of any law for the time being in force or of any
agreement or by the CG or the State Government by virtue of its shareholding in a Government
Company, subject to the articles of a Company.
In the present case, on the request of bank providing financial assistance the Board of Directors of PQR Limited
decides to appoint on its Board Mr. Peter, as nominee director. AOA of the Company do not confer upon the Board of
Directors any such power and further there is no agreement between the
Company and the bank. Thus, the appointment of Mr. Peter as nominee director is not valid as Articles do not confer
upon the Board of Directors any such power.
Exam Question
The AOA of a Company have fixed the maximum strength of the board as 12 directors. At present the Board has 9
directors. The Board wishes to appoint 3 additional directors. Can they appoint as desired as per provisions of the
Companies Act, 2013?
Answer
Under section 161 (1) of the Companies Act, 2013, the AOA of a Company may confer on its Board of Directors the
power to appoint any person, other than a person who fails to get appointed as a director at the general meeting, as
an additional director at any time and such director will hold office upto the date of the next AGM or the last date
on which such AGM should have been held, whichever is earlier.
From the above provision, it is clear the Board of directors of the Company can appoint the additional directors only
if they are authorized by the articles of the Company to do so.
In case such power is not given by the articles of the Company, the articles will first have to be altered to confer
such power on the Board after which the Board can appoint the 3 additional directors.
Further, 3 additional directors can be appointed as even after appointing 3 additional directors, the total number of
directors will not exceed the limit as prescribed in the AOA.

Exam Question
King Ltd. desires to appoint an additional director on its Board of directors. The Articles of the Company confer upon
the Board to exercise the power to appoint such a director. As such X is appointed as an additional director. In the
light of the provisions of the Companies Act, 2013, examine:
(i) Whether X can continue as director if the AGM of the Company is not held within the stipulated period and
is adjourned to a later date?
(ii) Can the power of appointing additional director be exercised by the AGM?
(iii) As the Company Secretary of the Company what checks would you make after X is appointed as an
additional director?
Answer
Section 161(1) of the Companies Act, 2013 provides that the AOA of a Company may confer on its Board of Directors
the power to appoint any person, other than a person who fails to get appointed as a director at the general meeting,
as an additional director at any time and such director will hold office upto the date of the next AGM or the last date
on which such AGM should have been held, whichever is earlier.
(i) X cannot continue as director till the adjourned AGM, since he can hold the office of directorship only up
to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.
Such an additional director shall vacate his office latest on the date on which the AGM could have been
held under Section 96 of the Companies Act, 2013.
He cannot continue in the office on the ground that the meeting was not held or could not be called
within the time prescribed.
(ii) The power to appoint additional directors vests with the Board of Directors and not with the members of
the Company. The only condition is that the Board must be conferred such power by the articles of the
Company.
(iii) As a Company Secretary, I would put the following checks in place in respect of X’s appointment as an
additional director:
a. He must have got the Directors Identification Number (DIN);
b. He must furnish the DIN and a declaration that he is not disqualified to become a director under the
Companies Act, 2013;
c. He must have given his consent to act as director and such consent has been filed with the Registrar
within 30 days of his appointment;
d. His appointment is made by the Board of Directors;
e. His name is entered in the statutory records as required under the Companies Act, 2013.

Exam Question
Examine the validity of the following:
Mr. Q, a Director of PQR Limited proceeding on a long foreign tour, appointed Mr. Y as an alternate director to act
for him during his absence. The articles of the Company provide for appointment of alternate directors. Mr. Q claims
that he has a right to appoint alternate director.

Answer
Under section 161(2) of the Companies Act, 2013 the Board of Directors of a Company may, if so authorised by its
articles or by a resolution passed by the Company in general meeting, appoint a person, not being a person holding any
alternate directorship for any other director in the Company, to act as an alternate director for a director during his
absence for a period of not less than three months from India.
From the above provision it is clear that the authority to appoint alternate director has been vested in the board of
directors only and that too subject to empowerment by the Articles.
Therefore, Q is not authorized to appoint an alternate director and the appointment of Mr. Y is not valid.

Exam Question
The Board of directors of XYZ Limited appointed Mr. A as a Director in the casual vacancy caused by resignation of
Mr. X. Mr. A is proposed to be re-appointed as a Director at the AGM, when he vacates his office. Examine with
reference to the relevant provisions of the Companies Act, 2013 whether Mr. A can be considered as a 'Retiring
Director' and state the legal requirements to be fulfilled to give effect to the proposed appointment of Mr. A as a
Director at the AGM.
Answer
In the given case, Mr. A was appointed as a director of XYZ Ltd. to fill a casual vacancy.
His appointment would have been made under section 161(4) of the Companies Act, 2013 which provides that in the
case of a public Company, if the office of any director appointed by the Company in general meeting is vacated before
his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any
regulations in the articles of the Company, be filled by the Board of Directors at a meeting of the Board.
Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he
is appointed would have held office if it had not been vacated.
Therefore, in the given case, Mr. A would be eligible to hold office till the date upto which Mr. X would have held
office. Mr. A will not automatically be considered as a “retiring director” at the next AGM of the Company. In case
he has to retire at the forthcoming AGM and wants to be reappointed as a director he will have to follow the provisions
of Companies Act, 2013 relating to the appointment of a person other than a retiring director as a director of the
Company which are as under:
(a) Section 152(2) of the Companies Act, 2013 provides that unless expressly provided in this Act, every
director shall be appointed by the Company in general meeting.
(b) Section 152 (3) further provides that no person shall be appointed as a director of a Company unless he has
been allotted the Director Identification Number under section 154.
(c) Section 152 (4) states that every person proposed to be appointed as a director by the Company in general
meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not
disqualified to become a director under this Act.
(d) Section 152 (5) states that a person appointed as a director shall not act as a director unless he gives his
consent to hold the office as director and such consent has been filed with the Registrar within 30 days of
his appointment in such manner as may be prescribed.
(e) Further under section 160(1) of the Companies Act, 2013 a person who is not a retiring director may be
appointed a director at the general meeting of the Company including the AGM by following the below
mentioned procedure:
(i) He or any other member intending to propose him as a director, has given a notice of not less 14 days in writing
under his hand signifying his candidature as a director or, as the case may be, intention of such member to
propose him as a candidate for that office;
(ii) The above referred notice has been delivered at the Registered Office of the Company;
(iii) The notice should be accompanied by a deposit of Rs. 1,00,000 or such higher amount as may be prescribed;
(iv) The deposit will be refunded to such person or to the member, as the case may be, in case the person is
appointed as a director at the meeting or gets more than 25% of total valid votes cast either on show of hands
or on poll on such resolution.
(v) Under section 160(2) on receipt of the notice as referred above, the Company shall inform its members of the
candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed.
Rule 13 of the Companies (Appointment & Qualification of Directors) Rules, 2014 prescribes for the Company
to Company shall, at least 7 days before the general meeting, inform its members of the candidature of a
person for the office of a director or the intention of a member to propose such person as a candidate for
that office by serving individual notices, on the members through electronic mode to such members who have
provided their email addresses to the Company for communication purposes, and in writing to all other
members; and by placing notice of such candidature or intention on the website of the Company, if any.

Exam Question
The Board of directors of XYZ Ltd. filled up a casual vacancy caused by the death of Mr. P by appointing Mr. C as a
director on 3rd April, 2014. Unfortunately Mr. C expired on 15th May, 2014 after working about 40 days as a director.
The Board now wishes to fill up the casual vacancy by appointing Mrs. C in the forthcoming meeting of the Board.
Advise the Board in this regard as per the provisions under the Companies Act, 2013.
Answer
Section 161(4) of the Companies Act, 2013 provides that in the case of a public Company, if the office of any director
appointed by the Company in general meeting is vacated before his term of office expires in the normal course, the
resulting casual vacancy may, in default of and subject to any regulations in the articles of the Company, be filled by
the Board of Directors at a meeting of the Board.
Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he
is appointed would have held office if it had not been vacated.
In view of the above provisions, in the given case, the appointment of Mr. C in place of the deceased director Mr. P
was in order. In normal course, Mr. C could have held his office as director up to the date to which Mr. P would have
held the same.
However, Mr. C expired on 15th May, 2014 and again a vacancy has arisen in the office of director owing to death of
Mr. C who was appointed by the board to fill up the casual vacancy resulting from P’s demise. Vacancy arising on the
Board due to vacation of office by the director appointed to fill a casual vacancy in the first place, does not create
another casual vacancy as section 161 (4) clearly mentions that such vacancy is created by the vacation of office by
any director appointed by the Company in general meeting. Hence, the Board cannot fill in the vacancy arising from
the death of Mr. C.
The Board may however appoint Mrs. C as an additional director under section 161 (1) of the Companies Act, 2013
provided the AOA authorises the board to do so, in which case Mrs. C will hold the office up to the date of the next
AGM or the last date on which the AGM should have been held, whichever is earlier.

Exam Question
Disha Limited is a company listed at Bombay Stock Exchange. Company’s Articles empower the Board of Directors to
appoint additional director. The Board of Directors, therefore, appoints Mr. K as the additional director. It may,
however, be pointed out that earlier, the proposal to appoint Mr. K as a director on the Company’s Board was rejected
by the members at the company’s Annual General Meeting.
Examine the provisions of the Companies Act, 2013, answer the following:
(i) Whether Mr. K’s appointment as additional director by the Board of Directors is valid?
(ii) Whether the Company’s Annual General Meeting can appoint Mr. K as the additional director when the
proposal to appoint comes before the meeting for the first time?
(iii) In case the AGM of the company is not held within the stipulated time, decide whether Mr. K who was
appointed by the Board as additional director, for the first time, can continue to act as a director?
Answer
Problem as asked in the question is based on the provisions of the Companies Act, 2013 as contained under section 161
(1) according to which:
The Articles of a company may confer upon its Board of Directors the power to appoint any person as an additional
director at any time.
A person, who fails to get appointed as a director in a general meeting of the company cannot be appointed as an
additional director in the same company.
Additional director shall hold office up to the date of the next AGM or the last date on which the AGM should have
been held, whichever is earlier.
In the given case, the answers to sub-questions are:
(i)The appointment of Mr. K as additional director by the Board of Directors is not valid because before appointing
him as an additional director, the proposal to appoint Mr. K as a director on the Company’s Board was rejected by the
members at the company’s Annual General Meeting.
(ii) The power to appoint additional directors vests with the Board of Directors and not with the members of the
company. The only condition is that the Board must be conferred such power by the articles of the company.
Therefore, in the present case, the company’s Annual General Meeting cannot appoint Mr. K as the additional director
when the proposal to appoint comes before the meeting for the first time because the company’s Articles empower
the Board of Directors to appoint additional director.
(iii)In case the AGM of the company is not held within the stipulated time, Mr. K cannot continue as additional director,
since he can hold the office of directorship only up to the date of the next annual general meeting or the last date
on which the annual general meeting should have been held, whichever is earlier. Such an additional director shall
vacate his office latest on the date on which the annual general meeting ought to have been held under Section 96 of
the Companies Act, 2013. He cannot continue in the office on the ground that the meeting was not held or could not
be called within the time prescribed.

Section 162 - APPOINTMENT OF DIRECTORS TO BE VOTED INDIVIDUALLY

1. At a general meeting of a Company, a motion for the appointment of two or more directors of the Company by a
single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting
without any vote being cast against it.
2. A resolution moved in contravention of sub-section (1) shall be void, whether or not any objection was taken when
it was moved.

Meeting 100% votes 51% votes

Resolution to take Resolution for

approval for appointment Appointment

*This section is – Not applicable to appointments made in board meetings.

**Amendments –
In case of Specified IFSC Public Company & IFSC Private Company - In sub-section (3) of Section 161,
the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company & IFSC Private Company, the Board may
appoint, any person nominated by any institution or company or body corporate as a director in pursuance
of the provisions of any law for the time being in force or of any agreement or by the CG or
the State Government by virtue of its shareholding in a Government company.”- Notification Dated 4th
January 2017.
Not applicable to :
a) Government companies in which 100% of PUSC is held by CG/SG/both.
b) Subsidiary of (a)
C) Private Company

Exam Question
In XYZ Ltd. three Directors were to be appointed. The item was included in agenda for the AGM scheduled on 30th
September, 2014, under the category of 'Ordinary Business'.
All the three persons as proposed by the Board of directors were elected as directors of the Company by passing a
'single resolution' avoiding the repetition (multiplicity) of resolution. After the three directors joined the Board,
certain members objected to their appointment and the resolution. Examine the provisions of Companies Act, 2013
and decide:
Whether the contention of the members shall be tenable and whether both the appointment of Directors and the
'single resolution' passed at the Company's AGM shall be void.
Answer
The matter of appointment of directors in place of those retiring at the AGM has been correctly stated in the agenda
as the ordinary business to be transacted at the general meeting. But in accordance with the provisions of section
162(1) of the Companies Act, 2013, at a general meeting of a Company, a motion for the appointment of two or more
persons as directors of the Company by a single resolution shall not be moved unless a proposal to move such a motion
has first been agreed to at the meeting without any vote being
cast against it. Section 162 (2) further provides that a resolution moved in contravention of sub-section (1) shall be
void, whether or not any objection was taken when it was moved.
Taking into account of the above, the contention of the members shall be tenable. Each director has to be appointed
by way of a separate resolution.

Exam Question
ABC Company Ltd. in its AGM appointed all its directors by passing one single resolution. No objection was made to
the resolution. Examine the validity of appointment of directors explaining the relevant provisions of the Companies
Act, 2013. Will it make any difference, if ABC Company was a private Company?
Answer
Under section 162(1) of the Companies Act, 2013, at a general meeting of a Company, a motion for the appointment of
two or more persons as directors of the Company by a single resolution shall not be moved unless a proposal to move
such a motion has first been agreed to at the meeting without any vote being cast against it.
From the above provision of law, it is mandatory for the Company to first get a unanimous approval of the Company on
the appointment of more than one director by a single resolution.
In the given case, no such motion was put to vote at the meeting and passed unanimously.
Merely not raising any objection is not the same as active unanimous approval.
Further, according to section 162(2), a resolution moved in contravention of sub-section (1) shall be void, whether or
not any objection was taken when it was moved. Hence, in the given case the appointment of all the directors made by
a single resolution at the AGM is void.
Section 162 is not applicable to private company. Thus, if ABC would have been a private company, the provisions of
section 162 shall not be attracted.

Section 163 - OPTION TO ADOPT PRINCIPLE OF PROPORTIONAL REPRESENTATION FOR

APPOINTMENT OF DIRECTORS
--Notwithstanding anything contained in this Act,
--the articles of a Company may provide for the appointment of
--not less than two-thirds of the total number of the directors of a Company
--in accordance with the principle of proportional representation,
--whether by the single transferable vote or by a system of cumulative voting or otherwise and --
such appointments may be made once in every three years and
--casual vacancies of such directors shall be filled as provided in sub-section (4) of section 161.
**Amendment :
This section is Not applicable to :
a) Government companies in which 100% of PUSC is held by CG/SG/both.
b) Subsidiary of (a)

Exam Question
A Company has in its AOA provided for appointment of not less than two-thirds of the total number of its directors
according to the principle of proportional representation. Can the directors so appointed be removed by the Company
in general meeting as per the provisions of the Companies Act, 2013?
Answer
Under section 163 of the Companies Act, 2013, the articles of a Company may provide for the appointment of not
less than two-thirds of the total number of the directors of a Company in accordance with the principle of
proportional representation, whether by the single transferable vote or by a system of cumulative voting or
otherwise and such appointments may be made once in every 3 years and casual vacancies of such directors shall be
filled as provided in sub-section (4) of section 161 i.e. by the board of directors at a duly convened board meeting.
Section 169 (1) of the Companies Act, 2013 provides for the removal of a director by ordinary resolution of members
(except a director appointed by the Tribunal) before the expiry of his term of office. However, according to the
proviso to section 169(1) this is not applicable where the Company has availed itself of the option given to it under
section 163 to appoint not less than two thirds of the total number of directors according to the principle of
proportional representation.
Hence, according to proviso to section 169(1), the directors elected by the principle of proportional representation
under section 163 of the Companies Act, 2013 cannot be removed by the shareholders in general meeting.

Section 164 - DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR

Key – U Chor Chor I I Chor Dur Raho
(a) he is of unsound mind;
(b) he has been convicted by a court of any offence,
* involving moral turpitude or otherwise, and
* imprisonment for not less than six months and
-period of five years has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment
for a period of 7 years or more, he shall not be eligible to be appointed as a director in any Company;
(c) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order
is in force;
(d) he is an undischarged insolvent;
(e) he has applied to be adjudicated as an insolvent and his application is pending;
(f) he has not paid any calls in respect of any shares of the Company held by him, whether alone or jointly with
others, and six months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time
during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152. i.e. he does not have DIN.

1. No person who is or has been a director of a Company which—

(a) has not filed financial statements or annual returns for any continuous period of three financial
years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to
pay or re
deem continues for one year or more,
shall be eligible to be re-appointed as a director of that Company or appointed in other Company for a
period of five years from the date on which the said Company fails to do so.
This section is Not applicable to Government companies.

**Amendment : Where a company does any such default in Sec 164(2) , any person who is appointed
as a director of a company in preceding 6 months from the date of such default shall not be
disqualified.

2. A private Company may by its articles provide for any disqualifications for appointment as a director in
addition to those specified in sub-sections (1) and (2).

Exam Question
Mr. Sachin is a Director of AB Limited and PQ Limited. AB Limited did not file financial statements for the years
ended 31st March, 2010, 2011 and 2012. AB Limited did not pay interest on loans taken from a public financial
institution from 1st April, 2012 and also failed to repay matured deposits taken from public on due dates from 1st
April, 2013 onwards.
Answer the following in the light of relevant provisions of the Companies Act, 2013:-
(i) Whether Mr. Sachin is disqualified under the Companies Act, 2013 and if so; whether he can continue as a
Director in AB Limited and can he also seek reappointment when he retires by rotation at the AGM of PQ
Limited to be held in September, 2014?
(ii) Mr. Sachin is proposed to be appointed as Additional Director of XY Limited in June, 2014. Is he eligible to
be appointed as Additional Director in XY Limited?
Answer
According to section 164(2) of the Companies Act, 2013, a person who is or has been a director of a Company which:
(A) has not filed the financial statements or annual returns for any continuous three financial years; or
(B) has failed to repay the deposits accepted by it or pay interest thereon on due date or redeem its debentures
on due date or pay interest due thereon or pay any dividends declared and such failure continues for one year
or more shall not be eligible to be re-appointed as a director of that Company or appointed in other Company
for a period of five years from the date on which the said Company fails to do so.
In the given case, the irregularities committed by AB Ltd. are
(a) Non filing of financial statements for year ended 31st March 2010 to 2012 (3 Yrs);
(b) Non payment of interest on loans taken from financial institution; and
(c) Non repayment of matured deposits taken from the public from 1st April 2013.
(i) Here, Mr. Sachin is a director of AB Ltd. and PQ Ltd. AB Ltd. did not file financial statements for three years
ended 31st March 2010, 2011 and 2012. Further, AB Ltd failed to repay matured deposits taken from public
from 1st April, 2013 onwards.
Both these failures constitute a disqualification under section 164 (2) and consequently, Mr. Sachin will not be eligible
for reappointment in AB Ltd.
It may be noted that the failure to pay interest on loans taken from a public financial institution is not covered under
section 164 (2) and hence does not constitute a disqualification.
As per section 167(1)(a) of the Companies Act, 2013, the office of a director shall become vacant in case he incurs
any of the disqualifications specified under section 164(2) of the Companies Act, 2013. Since, Mr. Sachin has attracted
disqualification under section 164(2) of the Companies Act, 2013, he has to vacate office of a director in AB Ltd.
Mr. Sachin cannot seek reappointment in PQ Ltd. when he retires by rotation at the AGM to be held in September,
2014.
(ii) In view of his disqualification under section 164 (2), Mr. Sachin is not eligible to be appointed as
additional director in XY Ltd. in June 2014.

Exam Question
State with reference to the relevant provisions of the Companies Act, 2013 whether the following persons can be
appointed as a Director of a Company:
(i) Mr. A, who has huge personal liabilities far in excess of his Assets and Properties, has applied to the court
for adjudicating him as an insolvent and such application is pending.
(ii) Mr. B, who was caught red-handed in a shop lifting case two years ago, was convicted by a court and
sentenced to imprisonment for a period of eight weeks.
(iii) Mr. C, a Former Bank Executive, was convicted by a court eight years ago for embezzlement of funds and
sentenced to imprisonment for a period of one year.
(iv) Mr. D is a Director of DLT Limited, which has not filed its Annual Returns pertaining to the AGMs held in
the years 2011, 2012 and 2013.
Answer
The first 3 cases stated in the question are based on the provisions of Section 164 (1) of the Companies Act, 2013
and the fourth case is dealt with in section 164 (2) of the said Act.
Based on the provisions of the said sections, each case can be discussed as follows:
(i) Section 164 (1) (c) states that a person shall not be eligible for appointment as a director of a Company if he
has applied to be adjudicated as an insolvent and his application is pending. Therefore, in the present case,
Mr. A cannot be appointed as a Director of a Company – whether public or private.
(ii) Section 164 (1) (d) states that a person shall not be eligible for appointment as a director of a Company0020if
he has been convicted by a court for any offence involving moral turpitude or otherwise and sentenced in
respect thereof to imprisonment for not less than six months, and a period of five years has not
elapsed from the date of expiry of the sentence.
In the present case, although the sentence was only two years ago, but the period of sentence was only eight weeks,
i.e., less than six months. Hence, Mr. B does not come under the purview of this disqualification and can be appointed
as a director of a Company.
(iii) The third case also falls within the provisions of section 164 (1) (d).
In this case the imprisonment was for a period of one year, i.e., for more than six months, but since more
than five years have elapsed from the expiry of the sentence, Mr. C is no longer disqualified and can be appointed as
a director of a Company.
(iv) Section 164 (2) states that a person who is or has been a director of a Company which has not filed the
financial statements or annual returns for any continuous period of three financial years, then such a person shall not
be eligible either to be appointed as a director of other Company or reappointed as a director in the same Company.
In the present case, DLT Limited has failed to file annual returns. Hence, the disqualification for Mr. D is attracted
and he cannot be appointed as a director in other Company nor can he be reappointed in the same Company

Exam Question
Mr. RSJ is a director of MNC Ltd., which had accepted deposits from public. The Financial position of MNC Ltd. turned
very bad and it failed to repay the deposits which fell due for payment on 10th April, 2014 and such repayment has
not been made till 5th May, 2015.
Another Company OMG Ltd. wants to appoint the said Mr. RSJ as its director at its AGM to be held on 6th May, 2015.
You are required to state with reference to the provisions of the Companies Act, 2013 whether Mr. RSJ can be
appointed as a director of OMG Ltd.
Answer
Section 164 (2) (b) of the Companies Act, 2013 states that where a person is or has been a director of a Company
which has failed to repay its deposit on due date and such failure continues for one year or more, then such person
shall not be eligible to be appointed as a director of any other Company for a period of five years from the date on
which such Company, in which he is a director, failed to repay its deposit.
In the instant case, MNC Ltd., has failed to repay its deposit on due dates and the default continues for more than
one year. Hence, Mr. RSJ will not be eligible to be appointed as a director of OMG Ltd.

Exam Question
Mr. Sethuraman is a Director of Fraudulent Ltd., Honest Ltd. and Regular Ltd. for the financial year ended on 31st
March, 2014. Two irregularities were discovered against fraudulent Ltd.
Fraudulent Ltd. did not file its financial statements for the year ended 31.3.2014 and failed to pay interest on loans
taken from a financial institution for the last three years.
On 1st June, 2015 Mr. Sethuraman is proposed to be appointed as additional director of Goodwill Ltd, which Company
has sought a declaration from Mr. Sethuraman and he also submitted the declaration stating that the disqualification
specified in Section 164 of the Companies Act, 2013 is not attracted in his case. Decide under the provisions of the
Companies Act:
(i) Whether the declaration submitted by Mr. Sethuraman to Goodwill Ltd. is in order?
(ii) Whether Mr. Sethuraman can continue as a Director in Honest Ltd. and Regular Ltd.?
Answer
(i) The declaration of Mr. Sethuraman is in order. According to section 164 (2) of the Companies Act, 2013 a
person who is or has been a director of a Company which:
(a) has not filed the financial statements or annual returns for any continuous three financial years; or
(b) has failed to repay the deposits accepted by it or interest thereon on due date or redeem its
debentures on due date or pay dividends declared and such failure continues for one year or more.
Shall not be eligible to be re-appointed as a director of that Company or appointed in other Company for a period of
five years from the date on which the said Company fails to do so.
As the financial statements were not filed only for one year, no disqualification attaches to him.
Further, the non payment of interest to the financial institution is no ground for disqualification under section 164
(2) of the Act.
(ii) Mr. Sethuraman can continue his directorship in all companies as no disqualification attaches to him under
section 164 (2) of the Companies Act, 2013.

Section 165 - NUMBER OF DIRECTORSHIPS

No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship,
in more than twenty companies at the same time.
**Amendment –This section is Not applicable to section 8 companies and Dormant Companies.
Provided that the maximum number of public companies in which a person can be appointed as a director shall not
exceed ten.
Explanation.— For reckoning the limit of public companies in which a person can be appointed as director, directorship
in private companies that are either holding or subsidiary Company of a public Company shall be included.
1. Subject to the provisions of sub-section (1), the members of a Company may, by special resolution, specify any
lesser number of companies in which a director of the Company may act as directors.
2. Any person holding office as director in companies more than the limits as specified in sub-section (1), immediately
before the commencement of this Act shall, within a period of one year from such commencement,—
(a) choose not more than the specified limit of those companies, as companies in which he wishes to continue to
hold the office of director;
(b) resign his office as director in the other remaining companies; and
(c) intimate the choice made by him under clause (a), to each of the companies in which he was holding the
office of director before such commencement and to the Registrar having jurisdiction in respect of each such
Company.
3. Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective immediately on the
despatch thereof to the Company concerned.
4. No such person shall act as director in more than the specified number of companies,—
(a) after despatching the resignation of his office as director or non-executive director thereof, in pursuance of
clause (b) of sub-section (3); or (b) after the expiry of one year from the commencement of this Act, whichever
is earlier.
If a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with fine
which shall not be less than five thousand Rs. but which may extend to twenty-five thousand Rs. for every day after
the first during which the contravention continues.

Exam Question
Mr. Tyrion is already a director of 19 companies out of which 10 are public limited companies and 9 are private
companies. He is being appointed as a director of another Company named Expensive Remedies Ltd. Advise Mr. Tyrion
in regard to the following:
(i) Restrictions on the number of directorships to be held by an individual and whether he can accept the new
appointment in view thereof.
(ii) What are the companies to be excluded for the purpose of calculating the ceiling on the appointment of
directors in a public Company?
Answer
(i) Under section 165 (1) of the Companies Act, 2013, no person, after the commencement of this Act, shall
hold office as a director including any alternate directorship, in more than twenty companies at the same
time.
Provided that the maximum number of public companies in which a person can be appointed as a director shall not
exceed ten.
Explanation to section 165 (1) clarifies that for reckoning the limit of public companies in which a person can be
appointed as director, directorship in private companies that are either holding or subsidiary Company of a public
Company shall be included.
This section shall not apply to section 8 companies.
In the said question, Mr. Tyrion is already a director in 10 public companies and as Expensive Remedies Ltd is a public
Company, he cannot be appointed as a director therein, even though his total directorships are less than 20.
(ii) For calculating the limit of 10 public companies, a private Company which is neither a subsidiary nor a holding
Company of a public Company will be excluded in terms of the explanation to section 165 (1) of
the Companies Act, 2013.
This section shall not apply to section 8 companies.

Exam Question
Mr. Raj is director in 10 public limited companies as on 30th July, 2014 and continues to be so till 26th September,
2014. The following companies appoint Mr. Raj as a director at their respective AGMs held on dates mentioned against
their names:
(1) MLP Ltd. (AGM held on 27th September, 2014)
(2) PAT Private Ltd. (AGM held on 25th September, 2014)
(3) KMC Ltd. (AGM held on 29th September, 2014)
You are required to state with reference to the relevant provisions of the Companies Act, 2013 the options available
to Mr. Raj in respect of accepting or not accepting the appointment of the above companies.
Answer
Section 165 of the Companies Act, 2013 debars any person from holding office as a director of more than 20 companies
at the same time out of which directorships in public companies cannot exceed ten.
In the given case, Mr. Raj is already a director in 10 public companies, hence he cannot hold office in any additional
public Company. Hence, he cannot accept appointment in MLP Ltd. and KMC Ltd. as these are public companies.
However, he can be appointed as director in PAT Private Ltd. as total number of directorship does not exceed 20 in
the present case.
Section 166 - DUTIES OF DIRECTORS
Key – ABI DUA
1. A director of a Company shall act in accordance with the articles of the Company.
2. A director of a Company shall act in good faith in order to promote the objects of the Company for the benefit
of its members as a whole, and in the best interests of the Company, its employees, the shareholders, the
community and for the protection of environment.
3. A director of a Company shall exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
4. A director of a Company shall not involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the Company.
5. A director of a Company shall not achieve or attempt to achieve any undue gain or advantage either to himself or
to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be
liable to pay an amount equal to that gain to the Company.
6. A director of a Company shall not assign his office and any assignment so made shall be void.
7. If a director of the Company contravenes the provisions of this section such director shall be punishable with fine
which shall not be less than one lakh Rs. but which may extend to five lakh Rs.. A director of a Company shall
act in accordance with the articles of the Company.

Section 167 - VACATION OF OFFICE OF DIRECTOR

(1) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
(b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months
with or without seeking leave of absence of the Board;
(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in
which he is directly or indirectly interested;
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in
contravention of the provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in
respect thereof to imprisonment for not less than six months:
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or other employment in the holding,
subsidiary or associate Company, ceases to hold such office or other employment in that Company.
(2) If a person, functions as a director even when he knows that the office of director held by him has become
vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh Rs. but
which may extend to five lakh Rs., or with both.
(3) Where all the directors of a Company vacate their offices under any of the disqualifications specified in sub-
section (1), the promoter or, in his absence, the CG shall appoint the required number of directors who shall hold
office till the directors are appointed by the Company in the general meeting.
(4) A private Company may, by its articles, provide any other ground for the vacation of the office of a director in
addition to those specified in sub-section (1).
(5) Provided that the disqualifications referred to in clauses (e) and (f) of subsection
(1) shall not take effect—
(i) for 30 days from the date of conviction or order of disqualification;
 (ii)where an appeal or petition is preferred within 30 days as aforesaid against the conviction resulting in
sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed
off; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until
such further appeal or petition is disposed off.
(6) Where he incurs disqualification u/s 164(2), the office of the director shall become vacant in all
the companies, other than the company which is in default under that sub-section.

Section 168 - RESIGNATION OF DIRECTOR

(1) A director may resign from his office by giving a notice in writing to the Company and the Board shall on receipt
of such notice take note of the same and the Company shall intimate the Registrar in such manner, within such
time and in such form as may be prescribed and shall also place the fact of such resignation in the report of
directors laid in the immediately following general meeting by the Company: Provided that a director may also
forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within 30 days
of resignation in such manner as may be prescribed.
(2) The resignation of a director shall take effect from the date on which the notice is received by the Company or
the date, if any, specified by the director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his resignation for the offences which
occurred during his tenure.
(3) Where all the directors of a Company resign from their offices, or vacate their offices under section 167, the
promoter or, in his absence, the CG shall appoint the required number of directors who shall hold office till the
directors are appointed by the Company in general meeting.

Exam Question
Due to internal problems in the working of Infighting Detergents Ltd., Mr. Amar and Mr. Akbar, a Director, have
submitted their resignations and decided to disassociate themselves with the working of the Company. Mr. Anthony,
the Managing Director, decides to refuse their resignations. Examine whether the Managing Director can compel Mr.
Amar and Mr. Akbar to continue as per the provisions of the Companies Act, 2013.
Answer
Section 168(1) of the Companies Act, 2013 provides that a director may resign from his office by giving a notice in
writing to the Company and the Board shall on receipt of such notice take note of the same and Company shall intimate
the Registrar in Form DIR-12 as prescribed in Companies (Appointment & Qualification of Directors) Rules, 2014 and
shall also place the fact of such resignation in the report of directors laid in the immediately following general
meeting by the Company.
The proviso to section 168(1) states that a director shall also forward a copy of his resignation along with detailed
reasons for the resignation to the Registrar within 30 days of resignation in such manner as may be prescribed.
Under the Companies (Appointment & Qualification of Directors) Rules, 2014 the director shall within 30 days of
resignation forward to the Registrar a copy of his resignation alongwith the reasons for his resignation with the
prescribed fee.
Further, section 168(2) states that the resignation of a director shall take effect from the date on which the notice
is received by the Company or the date, if any, specified by the director in the notice, whichever is later. The law
does not give an option to the Managing Director or the Company or the Board to reject the resignation of a director
and force him to continue.
Therefore, in the given case, the Managing Director cannot compel Mr. Amar and Mr. Akbar to continue as directors
in view of the above provisions.
Exam Question
Mr. Raj, a director of POL Ltd., submitted his resignation from the post of director to the Board of Directors on 30th
June, 2014 and obtained a receipt therefore on the same day. The Board of Directors of POL Ltd. neither accepted
the resignation nor did it file the required form with the Registrar of Companies. You are required to state whether
Mr. Raj ceases to be the Director of POL Ltd. and if yes, since when?
Answer
Section 168(2) of the Companies Act, 2013 states that the resignation of a director shall take effect from the date
on which the notice is received by the Company or the date, if any, specified by the director in the notice, whichever
is later.
The effectiveness of the resignation of the director is not in any way connected to its acceptance by the Company or
the Board nor is it linked to the filing of required form with the Registrar.
However, under the Proviso to section 168 (1), the resigning director is also required to file with the Registrar a copy
of his resignation and the reasons of his resignation in form DIR 11 within 30 days of the date of his resignation.
Hence, if the Company has failed to file the form DIR 12 as required by the Companies (Appointment & Qualifications
of Directors) Rules, 2014, the effectiveness of his resignation will not be impacted.
Therefore, in the given case, the resignation of Mr. Raj is valid and he will cease to be a director of POL Ltd with
effect from the date of notice i.e. 30th June 2014 as he has obtained the receipt of the notice on the same day.

Section 169 - REMOVAL OF DIRECTORS

(1) A Company may, by ordinary

resolution, remove a director,
not being a director appointed
by the Tribunal under section
242, before the expiry of the
period of his office after giving
him a reasonable opportunity of
being heard:
Provided that nothing
contained in this sub-section
shall apply where the Company
has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number
of directors according to the principle of proportional representation. i.e. director appointed by proportional
representation cannot be removed.
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint
somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the Company shall forthwith send a
copy thereof to the director concerned, and the director, whether or not he is a member of the
Company, shall be entitled to be heard on the resolution at the meeting.
(4) On serving of notice of a resolution to remove director: Where notice has been given of a
resolution to remove a director under this section and the director concerned makes with respect
thereto representation in writing to the company and requests its notification to members of the
company, the company shall, if the time permits it to do so,—
* in any notice of the resolution given to members of the company, state the fact of the representation
having been made; and
 * send a copy of the representation to every member of the company to whom notice of the meeting is
sent (whether before or after receipt of the representation by the company), and if a copy of
the representation is not sent as aforesaid due to insufficient time or for the company’s default, the
director may without prejudice to his right to be heard orally require that the representation shall be read
out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be
read out at the meeting if, on the application either of the company or of any other person who
claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub- section are
being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s
costs on the application to be paid in whole or in part by the director
notwithstanding that he is not a party to it.
* Where notice has been given of a resolution to remove a director under this
section and the director concerned makes with respect thereto representation in
writing to the Company and requests its
notification to members of the Company, the Company shall, if the time permits
it to do so,—
* in any notice of the resolution given to members of the Company, state the fact
of the representation having been made; and
* send a copy of the representation to every member of the Company to whom
notice of the meeting is sent (whether before or after receipt of the
representation by the Company),
and if a copy of the representation is not sent as aforesaid due to insufficient
time or for the Company’s default, the director may without prejudice to his right
to be heard orally require that the representation shall be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out at the
meeting if, on the application either of the Company or of any other person who claims to be aggrieved, the
Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity
for defamatory matter; and
the Tribunal may order the Company’s costs on the application to be paid in whole or in part by the director
notwithstanding that he is not a party to it.
* A vacancy created by the removal of a director under this section may, if he had been appointed by the Company
in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting
at which he is removed, provided special notice of the intended appointment has been given under subsection (2).
* A director so appointed shall hold office till the date up to which his predecessor would have held office if he
had not been removed.
* If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the
provisions of this Act:
Provided that the director who was removed from office shall not be re-appointed as a director by the Board of
Directors.
* Nothing in this section shall be taken—
* as depriving a person removed under this section of any compensation or damages payable to him in respect of the
termination of his appointment as director as per the terms of contract or terms of his appointment as director,
or of any other appointment terminating with that as director; or
as derogating from any power to remove a director under other provisions of this Act.
Exam Question
Mr. Polite is a director of Doubtful Industries Ltd. He along with other two directors has been running the Company
for the past twenty years without declaring any dividends or giving any benefit to the shareholders. Frustrated by
this, some shareholders are desirous of giving notice to pass a resolution with the support of other shareholders for
his removal as a director in the AGM of the Company to be held in the month of December of 2014.
State the procedure to be followed for the removal of Mr. Polite as a director.
Answer
Mr. Polite a director of Doubtful Industries Ltd., can be removed by following the provisions laid down in section 169
of the Companies Act, 2013 which provide for the removal of any director (excluding a director appointed by the
tribunal under section 242) by passing of an ordinary resolution at a duly convened meeting of the members of the
Company after giving special notice under section 115.
According to section 115 where, by virtue of any provision contained in the Companies Act, 2013 or in the articles of
a Company, special notice is required of any resolution, such notice of the intention to move such
resolution shall be given to the Company by such number of members holding not less than one percent. of total voting
power or holding shares on which the sum prescribed in the aggregate not exceeding five lakh Rs. has been paid up,
and the Company shall give its members notice of the resolution in such manner as may be prescribed.
2Therefore, the first thing that the shareholders must do is to ensure that the required number
of members as mentioned in section 115 are lined up for giving the special notice of the resolution proposed for the
removal of the directors.
Having achieved the required numbers and keeping the various provisions as mentioned above, the procedure for the
removal of Mr. Polite will be as under:
(i) An ordinary resolution is required to be passed at the proposed AGM of the Company.
(ii) A special notice shall be required of any resolution, to remove a director under this section.
(iii) On receipt of the notice of a resolution to remove a director under section 169, the Company shall forthwith
send a copy thereof to Mr. Polite and he is entitled to be heard on the resolution at the meeting.
(iv) On serving of notice of a resolution to remove director: Where notice has been given of a resolution to remove a
director under this section and the director concerned makes with respect thereto representation in writing to the
company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been
made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether
before or after receipt of the representation by the company), and if a copy of the representation is not sent as
aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be
heard orally require that the representation shall be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out at the
meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal
is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory
matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director
notwithstanding that he is not a party to it.

Section 170 - REGISTER OF DIRECTORS AND KEY MANAGERIAL PERSONNEL AN THEIR

SHAREHOLDING
1) Every Company shall keep at its registered office a register containing such particulars of its directors and key
managerial personnel as may be prescribed, which shall include the details of securities held by each of them in
the Company or its holding, subsidiary, subsidiary of Company’s holding Company or associate companies.
2) A return containing such particulars and documents as may be prescribed, of the directors and the key managerial
personnel shall be filed with the Registrar within 30 days from the appointment of every director and key
managerial personnel, as the case may be, and within 30 days of any change taking place.
**Amendment – This section is Not applicable to :
a) Government companies in which 100% of PUSC is held by CG/SG/both.

Section 171 - MEMBERS’ RIGHT TO INSPECT

(1) The register kept under sub-section (1) of section 170,—

(a) shall be open for inspection during business hours and the members shall have a right to take extracts therefrom
and copies thereof, on a request by the members, be provided to them free of cost within 30 days; and
(b) shall also be kept open for inspection at every AGM of the Company and shall be made accessible to any person
attending the meeting.
(2) If any inspection as provided in clause (a) of sub-section (1) is refused, or if any copy required under that
clause is not sent within 30 days from the date of receipt of such request, the Registrar shall on an application
made to him order immediate inspection and supply of copies required thereunder.
**Amendment –
In case of Specified IFSC Public Company and Specified IFSC Priavte Company - In Sub-section (2) of section 170
for the words “thirty days” at both places read as “sixty days”. - Notification Dated 4th January 2017.
This section is Not applicable to :
(a) Government companies in which 100% of PUSC is held by CG/SG/both.

Section 172 - PUNISHMENT

If a Company contravenes any of the provisions of this Chapter and for which no specific punishment is provided
therein, the Company and every officer of the Company who is in default shall be punishable with fine which shall not
be less than fifty thousand Rs. but which may extend to five lakh Rs.